Overview

This guide covers the European Union Emissions Trading System (EU ETS) Union Registry, the use of Kyoto units for compliance within the EU ETS and carbon allowance auctions.

As a cap-and-trade system, the EU ETS sets an emissions cap or limit on the total emissions allowed by all EU ETS operators, but within that limit the carbon market allows participants in the System to buy and sell allowances as they require.

The carbon price signifies the amount participants in the EU ETS are willing to pay per EU allowance (1 allowance (EUA) equals 1 tonne of CO2 or its equivalent) given demand and supply. In addition, EU Aviation allowances (EUAAs) have been created to be used for compliance by airline operators.

Over the course of Phase III, 50% of allowances will be auctioned. ICE Futures Europe is conducting auctions of EU ETS Phase III EUAs and EUAAs on behalf of DECC.

Operators also have the option to use certain Kyoto Units for compliance within the EU ETS, subject to limits.

An EU ETS operator can access the secondary carbon market to buy allowances or Kyoto Units through multiple routes:

trading directly with other companies covered by the System

buying or selling from intermediaries, e.g. banks and specialist traders

using the services of a broker

joining one of the several exchanges that list carbon allowance products

The European Union Registry is an online database hosted and managed by the European Commission by which EUAs, EUAAs and Kyoto Units are held, traded and surrendered for compliance purposes.

Participants are advised to seek their own, independent professional advice on these matters.

The European Union Transaction Log (EUTL) checks, records, and authorises all transactions that take place between accounts in the European Union registry. The EUTL can be viewed online and provides detailed information on the compliance of EU ETS operators, Union Registry account holders and transactions between accounts.

From June 2012, registry systems were brought together to a single registry system, operated and managed by the European Commission. Each Member State now has its own national administrator and national registry section within the single Union Registry. The Environment Agency is the national administrator for the UK and is responsible for the maintenance and administration of the UK national registry section within the European Union Registry.

How to open an account in the registry

In addition to operator accounts, the Union Registry also contains person holding accounts and trading accounts. Any individual or organisation can apply to open such accounts, which can be used purely for trading units. Such accounts have no compliance obligations. Any further questions or queries on the operation and functionalities of the Union Registry should be directed by email to the UK registry administrator.

Kyoto units in Phase III

Operators have the option to use certain Kyoto Units for compliance within the EU ETS, subject to limits on the type and quantity of units specified in the ETS Directive and Registry Regulation. These limits are set out below, along with information on how to use these units for compliance within the EU ETS.

Type of units

Certain Certified Emissions Reductions (CERs) and Emissions Reduction Units (ERUSs) can be used for compliance in the EU ETS. Further information on this, including FAQs, can be found on the European Commission website.

Quantity of units

Operators and aircraft operators may exchange eligible CERs and ERUs for EUAs and EUAAs up to limits. Limits are cumulative across Phase II and Phase III of the EU ETS and are specified in a European Commission regulation on international credit entitlement adopted on 8 November 2013.

How to use units in the EU ETS

In Phase III, certain CERs and ERUs can be swapped for EUAs, subject to the limits discussed above, in the Union Registry. Operators can transfer valid CERs and ERUs into a central account in the Union Registry, and once verified as eligible for use by that operator within the EU ETS the operator’s EUA holding account will be credited with the equivalent number of EUAs. Aircraft operators may request this swap and be credited with EUAAs. The European Commission Registry Regulation sets out the process for this in more detail.

Operators of installations and aircraft operators regulated under the EU ETS should note that the exchange of eligible Commitment Period 1 International Project Credits into general and aviation allowances, must occur by 31st March 2015, after which they will become ineligible for use in the EU ETS. Your International Project Credit entitlement (limit) is displayed in your Operator Holding Account or your Aircraft Operator Holding Accounts.

Phase III auctioning

Auctioning is an effective way of distributing allowances to the market and reinforces the ‘polluters pay’ principle. It encourages businesses to take account of the full cost of carbon in the decisions they make.

The European Commission’s Auctioning Regulation governs the auctioning of Phase III EUAs and EUAAs. It provided for the establishment of a common EU auction platform and granted member states the right to opt out and set up national platforms - the UK, Germany and Poland exercised this right. The UK was the first EU member state to hold an auction in phase II (2008 to 2012) and auctioned 10% of allowances compared to the EU average of 3%.

The UK appointed ICE Futures Europe to conduct auctions of EU ETS Phase III EUAs and EUAAs on behalf of DECC from November 2012. The contract with ICE has been extended to conduct auctions until November 2017. Previously this service was provided by the UK Debt Management Office. The UK’s auctions are open to those that fulfil the criteria set out in the relevant EU legislation and ICE’s membership requirements. You’ll find guidance on how to participate in these auctions on the ICE emissions auctions web pages.

DECC performs the role of UK Auctioneer for these auctions. This role is required by EU legislation and is responsible for the conduct of the auctions.

The EU is in the process of appointing a Single Auction Monitor (SAM) to monitor and report on the conduct of certain emissions auctions across Europe. For more information, please see the European Commission website.

Phase II auction results

During Phase II of the EU ETS, the UK held 30 successful competitive auctions, selling almost 123 million EUAs and raising approximately £1.3 billion for the exchequer. For results from Phase II auctions, please see the Debt Management Office website.

Re-procurement of the UK’s Phase III EU ETS auction platform

UK Ministers have agreed to retain the UK’s opt-out from the EU Emissions Trading System (EU ETS) common auction platform following expiry of the contract with the current provider in November 2017. On 4 February 2016 DECC launched the first stage of the re-procurement process by publishing a ‘Prior Information Notice’ through the Tender Electronics Daily Website. DECC will be holding a market engagement day for potential bidders on 10 March 2016. If you would like to attend the engagement session, find out more information, or express an interest in submitting a bid when the formal tender process commences, please contact euetsauctionplatform@decc.gsi.gov.uk.

Union Registry Publicly Accessible Information

UN (S)IAR Assessment

The implementation of a national registry is required in order for each Annex B Party to be deemed eligible to participate in the Kyoto mechanisms. Requirements for national registries are set primarily through decision 13/CMP.1.

The below information is being made available in line with reporting requirements as set out under the Kyoto protocol which ensures consistency of reporting of public information between registries and facilitates the review of public information during the annual assessments performed under the Independent Assessment Report (S)IAR common operational procedure, in support of the expert review.

Each registry is assessed to determine whether the appropriate requirements are met and results are forwarded in the form of (Standard) Independent Assessment Reports (S)IARs to the Expert Review Teams working under Article 8 of the Kyoto Protocol.

Pursuant to paragraphs 44 to 48 of the annex to decision 13/CMP.1 of the Kyoto Protocol, below is a list of the publicly available information relating to the United Kingdom’s National Registry as required by the (S)IAR assessment.

Account information from the Union Registry

Paragraph 45 of the annex to decision 13/CMP.1 discusses information about accounts that must be publicly accessible. Account information from the Union Registry can be viewed in the report on Account information:

In accordance with Commission Regulation Article 110 (EU) No 389/2013 the following information has been deemed to be confidential: Holdings of all accounts all transactions made, the unique unit identification code of the allowances and the unique numeric value of the unit serial number of the Kyoto units held or affected by a transaction. Representative name and contact information; the full name, mailing address, telephone number, facsimile number and email address of the representative of the account holder is also deemed to be confidential.

Article110

‘Information, including the holdings of all accounts, all transactions made, the unique unit identification code of the allowances and the unique numeric value of the unit serial number of the Kyoto units held or affected by the transaction, held in the EUTL, the Union registry and every other KP registry shall be considered confidential except as otherwise required by Union law, or by provisions of national law that pursue a legitimate objective compatible with this Regulation and are proportionate’

Information on Article 6 Projects (JI Projects)

Paragraph 46 of the annex to decision 13/CMP.1 discusses information about article 6 projects, also known as Joint Implementation (JI) projects that must be publically available.

The United Kingdom of Great Britain and Northern Ireland does not host any Joint Implementation Projects.

Information on Unit Holdings/Transactions

Paragraph 47 of the annex to decision 13/CMP.1 discusses information about the unit holdings and transactions that must be publically accessible.

Read the SEF report for the information as stipulated in Paragraph 47:

Further information

Carbon credit scam

Carbon markets are not intended for personal investors. We have been alerted to fraudsters using the name ‘Carbon Registry’ or similar who are contacting the public, wrongly claiming that the ‘Carbon Registry’ is part of the Department of Energy and Climate Change, and giving fake contact details of the department. These fraudsters may try to apply pressure on people to buy shares, carbon credits, or certified emission reductions (CERs) at high prices. Those targeted may be telephoned and told that the ‘Carbon Registry’ will take legal action against them because they refused to buy shares and sometimes details of fictitious court cases are given to add weight to the ploy.

The Department advises anyone who receives communications of this kind to report the matter to the police ( call 101, the non-emergency contact number), either directly or through Action Fraud.